Nunavet Ocean Cruises sold an issue of 12-year $1,000 par bonds to build new ships.The bonds pay 4.85% interest,semiannually.Today's required rate of return is 9.7%.How much should these bonds sell for today? Round off to the nearest $1.

Question

Quizplus · Accepted Answer

To calculate the price of the bond, we need to use the following formula:

P = (C / r) x [1 - 1 / (1 + r)n] + FV / (1 + r)n

Where:
P = price of the bond
C = semiannual coupon payment
r = required rate of return (annual)
n = number of semiannual periods (years x 2)
FV = face value

Plugging in the values, we get:

P = (2.425 / 0.097) x [1 - 1 / (1 + 0.097)^24] + 1000 / (1 + 0.097)^24
P = 25.00 x 12.954 + 260.53
P = 660.45

Therefore, the answer is C.

Nunavet Ocean Cruises Sold an Issue of 12-Year $1,000 Par